CHAPTER 1UNDERSTANDING AND WORKING WITH THE FEDERAL TAX

Posted on Posted in General General Questions, General Questions

354. CHAPTER
4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que54
Sarah and Emily form Red Corporation with the following investments: Sarah
transfers computers worth $200,000 (basis of $80,000), while Emily transfers
real estate worth $180,000 (basis of $40,000) and services (worth $20,000)
rendered in organizing the corporation. Each is issued 600 shares in Red
Corporation. With respect to the transfers:

a.
Sarah has no recognized gain; Emily recognizes income/gain of $160,000.
b. Neither Sarah nor Emily recognizes
gain or income.
c. Red Corporation has a basis of
$60,000 in the real estate.
d. Emily has a basis of $60,000 in the
shares of Red Corporation.
e. None of the above.

355. CHAPTER
4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que55
Wade and Paul form Swan Corporation with the following investments. Wade
transfers machinery (basis of $40,000 and fair market value of $100,000), while
Paul transfers land (basis of $20,000 and fair market value of $90,000) and
services rendered (worth $10,000) in organizing the corporation. Each is issued
25 shares in Swan Corporation. With respect to the transfers:

a.
Wade has no recognized gain; Paul recognizes income/gain of $80,000.
b. Neither Wade nor Paul has recognized
gain or income on the transfers.
c. Swan Corporation has a basis of
$30,000 in the land transferred by Paul.
d. Paul has a basis of $30,000 in the 25
shares he acquires in Swan Corporation.
e. None of the above.

356. CHAPTER
4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que56
Rick transferred the following assets and liabilities to Warbler Corporation.

Adjusted

Fair Market

Basis

Value

Building

$210,000

$225,000

Equipment

45,000

75,000

Trucks

15,000

30,000

Mortgage (held
for four years) on building

30,000

30,000

In return, Rick received $75,000 in cash plus 90% of Warbler Corporation’s only
class of stock outstanding (fair market value of $225,000).

a.
Rick has a recognized gain of $60,000.
b. Rick has a recognized gain of
$75,000.
c. Rick’s basis in the stock of Warbler
Corporation is $270,000.
d. Warbler Corporation has the same
basis in the assets received as Rick does in the stock.
e. None of the above.

357. CHAPTER
4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que57
Sarah and Tony (mother and son) form Dove Corporation with the following
investments: cash by Sarah of $55,000; land by Tony (basis of $35,000 and fair
market value of $45,000). Dove Corporation issues 200 shares of stock, 100 each
to Sarah and Tony. Thus, each receives stock in Dove worth $50,000.

a.
Section 351 cannot apply since Sarah should have received 110 shares instead of
only 100.
b. As a result of the transfer, Tony
recognizes a gain of $10,000.
c. Tony’s basis in the stock of Dove
Corporation is $50,000.
d. Section 351 may apply because stock need
not be issued to Sarah and Tony in proportion to the value of the property
transferred.
e. None of the above.

358. CHAPTER
4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que58
Hunter and Warren form Tan Corporation. Hunter transfers equipment (basis of
$210,000 and fair market value of $180,000) while Warren transfers land (basis
of $15,000 and fair market value of $150,000) and $30,000 of cash. Each
receives 50% of Tan’s stock. As a result of these transfers:

a.
Hunter has a recognized loss of $30,000; Warren has a recognized gain of
$135,000.
b. Neither Hunter nor Warren has any
recognized gain or loss.
c. Hunter has no recognized loss; Warren
has a recognized gain of $30,000.
d. Tan Corporation has a basis in the
land of $45,000.
e. None of the above.

359. CHAPTER
4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que59
Erica transfers land worth $500,000, basis of $100,000, to a newly formed
corporation, Robin Corporation, for all of Robin’s stock, worth $300,000, and a
10-year note. The note was executed by Robin and made payable to Erica in the
amount of $200,000. As a result of the transfer:

a.
Erica does not recognize gain.
b. Erica recognizes gain of $400,000.
c. Robin Corporation has a basis of
$100,000 in the land.
d. Robin Corporation has a basis of
$300,000 in the land.
e. None of the above.

360. CHAPTER
4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que60
Kathleen transferred the following assets to Mockingbird Corporation.

Adjusted

Fair Market

Basis

Value

Cash

$100,000

$100,000

Equipment

48,000

36,000

Land

108,000

144,000

In exchange, Kathleen received 40% of Mockingbird Corporation’s only class of
stock outstanding. The stock has no established value. However, all parties
sincerely believe that the value of the stock Kathleen received is the
equivalent of the value of the assets she transferred. The only other
shareholder, Rick, formed Mockingbird Corporation five years ago.

a.
Kathleen has no gain or loss on the transfer.
b. Mockingbird Corporation has a basis
of $48,000 in the equipment and $108,000 in the land.
c. Kathleen has a basis of $256,000 in
the stock of Mockingbird Corporation.
d. Mockingbird Corporation has a basis
of $36,000 in the equipment and $144,000 in the land.
e. None of the above.

361. CHAPTER
4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que61
Dawn, a sole proprietor, was engaged in a service business and reported her
income on a cash basis. Later, she incorporates her business and transfers the
assets of the business to the corporation in return for all the stock in the
corporation plus the corporation’s assumption of the liabilities of her
proprietorship. All the receivables and the unpaid trade payables are
transferred to the newly formed corporation. The assets of the proprietorship
had a basis of $105,000 and fair market value of $300,000. The trade accounts
payable totaled $25,000. There was a note payable to the bank in the amount of
$95,000 that the corporation assumes. The note was issued for the purchase of computers
and other business equipment.

a.
Dawn has a gain on the transfer of $15,000.
b. The basis of the assets to the
corporation is $300,000.
c. Dawn has a basis of $10,000 in the
stock she receives.
d. Dawn has a zero basis in the stock
she receives.
e. None of the above.

362. CHAPTER
4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que62
Carl transfers land to Cardinal Corporation for 90% of the stock in Cardinal
Corporation worth $20,000 plus a note payable to Carl in the amount of $40,000
and the assumption by Cardinal Corporation of a mortgage on the land in the
amount of $100,000. The land, which has a basis to Carl of $70,000, is worth
$160,000.

a.
Carl will have a recognized gain on the transfer of $90,000.
b. Carl will have a recognized gain on
the transfer of $30,000.
c. Cardinal Corporation will have a
basis in the land transferred by Carl of $70,000.
d. Cardinal Corporation will have a
basis in the land transferred by Carl of $160,000.
e. None of the above.

363. CHAPTER
4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que63
Kirby and Helen form Red Corporation. Kirby transfers property, basis of
$20,000 and value of $300,000, for 100 shares in Red Corporation. Helen
transfers property, basis of $40,000 and value of $280,000, and provides legal
services in organizing the corporation. The value of her services is $20,000.
In return Helen receives 100 shares in Red Corporation. With respect to the
transfers:

a.
Kirby will recognize gain.
b. Helen will not recognize any gain or
income.
c. Red Corporation will have a basis of
$280,000 in the property it acquired from Helen.
d. Red will have a business deduction of
$20,000.
e. None of the above.

Leave a Reply

Your email address will not be published. Required fields are marked *